Repeating history doesn't guarantee a mistake. Sometimes it's an opportunity. That right now is how Cramer views a number of rising regional banks.
This moment in time – post-credit crisis – is much like the end of the savings-and-loan crisis. The Federal Insurance Deposit Co. in the early 1990s sold off failing institutions to smaller yet stronger firms, creating regional powerhouses. Like Fleet, which grew from a conservative Providence, Rhode Island, outfit to New England’s largest bank. Bank of America in 2004 bought Fleet, giving investors a 500% return over that 16-year period.
Well, the same thing is happening again, the FDIC selling credit-crisis losers to smarter, more adaptable survivors of which Charles Darwin would be proud. Cramer predicts that these winners could generate similar returns to those of Fleet, so investors should buy their stocks now.
NewAlliance Bancshares is one of his top picks. This New Haven, Conn., company’s low delinquency rate, few nonperforming loans and heavy capital reserves should make it an FDIC darling. The next time a local competitor is going under, NewAlliance could get the remaining assets at fire-sale prices, much as First Niagara Financial Group did in July with Harleysville National. If that happens, the earnings obviously increase, as should the share price.
Cramer was a bit worried about NewAlliance’s lack of acquisitions, but a recent shelf filing seems to indicate that they’re on the way. He wanted the full story, though, so he invited CEO Peyton Patterson onto Mad Money. Watch the full interview for that and more.
Cramer’s charitable trust owns Bank of America.
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